Wednesday, June 02, 2010

Feet Of Clay

The Pru's soon-to-be-ex-CEO in conference with St Bob

Here on BOM, we write a lot about mendacious self-serving politicos and overpaid incompetent public sector managers. They're our stock in trade - the dreadful people who consume half our national income.

Cynical? Well, we long ago learned that even the brightest and the best of these people have feet of clay. When by some chance we've enthused about one of them, more often than not, that person promptly lets us down (eg see our many posts on boonie king Sir John Bourn, the now disgraced ex-head of the National Audit Office).

The depressing case of David Laws is a prime example. Here was a man we praised at the start of last week - praised for his clear grip on the most difficult problem we face, and his apparent willingness to take the political heat in order to promote the national interest. A man to admire.

The next thing - blow me down - it turns out our shining new hero has been up to his grubby haunches guzzling in the trough. Sure, he may have been shopped by dark homophobic forces working to undermine the coalition, but that's no excuse - he's the one that did the guzzling.

They may have talked a great story of sunlit uplands and plenty for all, but when it came down to it, they were apparently quite prepared to sacrifice the financial interests of their shareholders to further their own vaulting and vainglorious ambitions.

Unsurprisingly the shareholders are furious - especially since they now understand the CEO was actually trying to dump them:

"Thiam faces a bigger charge: forgetting that although the money and deal was Asian, crucially it depended on a vote by British investors. Thiam's proposal was to create a vast new Asian-focused insurer where the shares and the value of the company would be in Asia, at the cost of the existing shareholders.

As one expert observer said: "Tidjane wanted to fire his current investors and get some new ones. He just forgot about the vote."

Now, we know some other people who'd like to fire their traditional supporters and get some new ones, don't we. It's no surprise that the ambitious Thiam has already had one spell as a politico, and that according to one rumour, as a French citizen, he has set his ultimate sights on the Presidency of La Belle France itself.

It's all so very very like the behaviour of our own dear politicos.

And yet there are some key differences.

First, these jokers have been stopped by their voters (aka the shareholders). Under the Pru's constitution they could not proceed with the lunacy without holding a referendum to get shareholder support. And there has been a shareholder rebellion the like of which the City has not seen in many a year*. If only we voters had such a lock on our Westminster politicos.

Second, there will be consequences both for the management of Prudential and probably the company itself. Private sector companies that screw up like this tend to get eaten by rivals who haven't. Choice and competition mean that evolutionary rules apply. Unlike one-size-fits-all Big Government, private sector companies cannot make huge and wasteful mistakes with impunity. Nature ensures change and improvement.

So yes, feet of clay exist all over.

But only in government do we carry on pretty well along the same old road irrespective of whose feet are on the control pedals. We desperately need to break it up.

*Footnote - As others have pointed out, the Pru shareholder rebellion could be a turning point in UK corporate governance. For the first time in living memory, institutional shareholders have flexed their muscles and said no to a high-rolling high risk management team. That's precisely what the textbooks say they should do, and precisely what they didn't do during the great financial bubble. Maybe there is hope for the future after all.

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Despite all the talk of cuts, government still consumes nearly half our national income. Yet many tens of billions of its spending is wasted, with taxpayers made to pick up the tab for a depressing array of overpriced sub-standard services. This is money we can no longer afford, and our National Debt is already at danger level.

If we're to avoid further decades of stagnation and austerity we urgently need to find another way. Exposing and understanding the wastefulness of government is a necessary step in the right direction.